Chapter 11 BUS 189

Steps to failure of established firms

(1) Mastery of, and Fit with, Current Environment (2) Success, usually measured by financial metrics (3) Measures to accommodate and manage size (4) Organizational inertia

What does an organizational structure define?

how firms divide and integrate tasks, delineates the reporting relationships up and down the hierarchy, defines formal communication channels, and prescribes how employees coordinate work efforts.

Key components of organizational design

structure, culture, and control

What is the strategy structure relationship pattern?

Simple to functional to multidivisional to matrix (based on complexity)

Core rigidity

A former core competency that turned into a liability because the firm has failed to hone, refine, and upgrade the competency as the environment changed.

Organizational structure

A key building block of organizational design that determines how the work efforts of individuals and teams are orchestrated and how resources are distributed.

Strategic control-and-reward systems

A key building block of organizational design; internal-governance mechanisms put in place to align the incentives of principals (shareholders) and agents (employees).

Founder imprinting

A process by which the founder defines and shapes an organization's culture, which can persist for decades after his or her departure.

Groupthink

A situation in which opinions coalesce around a leader without individuals critically evaluating and challenging that leader's opinions and assumptions.

What can managers use as part of the firm's strategic control-and-reward systems?

Balanced-scorecard framework, organizational culture, input controls, and output controls

Formalization

An element of organizational structure that captures the extent to which employee behavior is steered by explicit and codified rules and procedures.

Specialization

An element of organizational structure that describes the degree to which a task is divided into separate jobs (i.e., the division of labor).

Centralization

An element of organizational structure that refers to the degree to which decision making is concentrated at the top of the organization.

Exploitation

Applying current knowledge to enhance firm performance in the short term.

What is the strategy-structure relationship?

Dynamic and changing in a predictable pattern

How must a firm gain and sustain competitive advantage?

Make sure the chosen organizational form must match the firm's business strategy.

Input controls

Mechanisms in a strategic control-and- reward system that seek to define and direct employee behavior through a set of explicit, codified rules and standard operating procedures that are considered prior to the value creating activities.

output controls

Mechanisms in a strategic control-and- reward system that seek to guide employee behavior by defining expected results, but leave the means to those results open to individual employees, groups, or SBUs.

Mechanistic organization

Organizational form characterized by a high degree of specialization and formalization, and a tall hierarchy that relies on centralized decision making.

Simple structure

Organizational structure in which the founders tend to make all the important strategic decisions as well as run the day-today operations.

Matrix structure

Organizational structure that combines the functional structure with the M-form.

Multidivisional structure (M-form)

Organizational structure that consists of several distinct strategic business units (SBUs), each with its own profit-and-loss (P&L) responsibility.

Functional structure

Organizational structure that groups employees into distinct functional areas based on domain expertise.

Exploration

Searching for new knowledge that may enhance future performance.

What are the four building blocks of an organizational structure?

Specialization, formalization, centralization, and hierarchy.

Organizational culture

The collectively shared values and norms of an organization's members; a key building block of organizational design.

Strategy implementation

The part of the strategic management process that concerns the organization, coordination, and integration of how work gets done. It is key to gaining and sustaining competitive advantage.

Organizational design

The process of creating, implementing, monitoring, and modifying the structure, processes, and procedures of an organization.

Strategic control-and-reward systems

allow managers to specify goals, measure progress, and provide performance feedback.

The goal of organizational design

allows managers to effectively translate their chosen strategy into a realized one

Organizational inertia

can lead to the failure of established firms when a tightly coupled system of strategy and structure experiences internal or external shifts.

Organic organizations

characterized by a low degree of specialization and formalization, a flat organizational structure, and decentralized decision making.

Mechanistic organizations

described by a high degree of specialization and formalization, and a tall hierarchy that relies on centralized decision making.

Corporate culture

finds its expression in artifacts, which are observable expressions of an organization's culture.